Home Depot says store closures part of strategy to focus on core cities

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When Home Depot closed its mega-store in Beijing two months ago, many thought the world's largest home improvement retailer was on the verge of withdrawing from the highly competitive market in China.

However, Raymond Chou, president of Home Depot China Retail, said the store never gave up on its goal to become the No 1 player in the mainland market.

'That closure helped us find our strategy going forward. Now we will focus on two core markets in Tianjin and Xian. We'll grow from there, get leadership there and then move on to other markets,' he said.

The road has been bumpy for the American retailing giant since it entered the market five years ago, and in January, the company said it was shutting down its 13,000 square metre shop in Beijing's West Fourth Ring Road following 'a financial and commercial evaluation' of the store's performance.

That was the fifth store the company closed after acquiring all 12 stores run by local home upgrader Home Way in six mainland cities. The move triggered widespread expectations that it might also close the remaining stores in Tianjin, Xian and Zhengzhou.

The speculation was wrong, said Chou, who was appointed to head Home Depot China in June last year.

'I agree that part of our business needed to improve,' he said.

'And we made a decision [to close the stores] if they did not make sense from a commercial or financial perspective.'

The decision was part of the company's plan to focus on the Tianjin and Xian markets, where it will now invest more, he said.

The company has good reasons to be bullish on Tianjin and Xian.

Tianjin, a gateway to northern China, is now building the largest financial hub in the world. The central government has designated Binhai New Area, a 2,270 sqkm strip in the city, as an experimental zone for financial reforms.

Xian, the capital of Shaanxi province, has been enjoying the central government's largesses amid an ongoing thrust to accelerate the development of the northwestern region.

Since the end of last year, the company has introduced new products, built up relationships with new suppliers, upgraded the stores and offered exclusive foreign brands in its Tianjin and Xian outlets.

In addition, it also opened a 700-plus square metre Life Style Centre inside a Xian store. The centre displays soft furnishing such as curtains, lighting, flooring and furniture.

'The two [Tianjin and Xian] markets are doing really well if you look at the customer traffic and feedback. And we have seen our business improve significantly in the past few months,' said Chou, without disclosing sales figures.

At present, the China arm is only a small component of the Atlanta-based company's global business, with over 2,200 big-box stores mostly in the United States, Canada and Mexico.

Yet it remains as one of the most sophisticated for the retailer.

Unlike Western consumers who prefer the do-it-yourself variety, Chinese homeowners tend to have the entire renovation projects done by construction companies.

Foreign warehouse-style store operators like Home Depot and British home improvement retailer B&Q compete against a wide range of players from small home-renovation providers to mega shopping malls.

B&Q said two years ago that it would shut a third of its 60-plus shops on the mainland after recording a loss of more than Euro50 million (HK$549.2 million) in the market in 2009.

Chou, however, was upbeat about Home Depot's future growth in China. 'Customers might be different in every place. But at the end of the day they will look at the real value of what they pay for. And all they want is safe, quality products and reliable customer services, which is exactly what we pursue as well.'

Giant operation

Home Depot's global business includes this number of big-box stores mostly in the United States, Canada and Mexico: 2,200